Force India and Sauber's EU complaint

[turbof1]

I know you see FOM and the teams as being competitors within the broad framework of a single market. I do not, because their roles aren't interchangeable. See also: SSNIP test

No, I see the FOM as a customer and the teams as suppliers. Those are not competitors, but market agents on the same market: the teams provide services in the form of entertainment through their products (the cars and generally the racing), the FOM buys it and is the only one buying it. I really want to underline that, hence why I am so pushy on the FOM being a monopsonist. Let's make that clear: the FOM is not a competitor in my eyes. But competition is not per se a requirement for market manipulation. It's the most commonly factor for market manipulation, but not always.

Again, the starting point is market manipulation. The Commission always starts from there.

[bhall II]

Competitor, as in: a generic term for any profit-seeking entity, or "undertaking," competing for profits in a given market, i.e. the opposite of a non-profit organization.

[TAG]

I think in the end the purpose of this complaint isn't to win or lose; Sauber and Force India are already in a losing situation. But there is everything to gain simply from getting the visibility and exposing the unfair/imbalanced individual contracts. The sport would miss Ferrari (and Red Bull) to a degree, but it would also just as much miss a collective exodus by a number of smaller and financially strapped teams like Lotus, Force India and Sauber.

There is also the self preservation aspect that Bernie has very tightly intertwined albeit completely disparate deals. The last decade is littered with examples of on the spot reactionary deals that although each are independent, they exacerbate and put the whole deeper and deeper into financial pressures. A collective of three teams failing to make the grid when there's a 16 car grid minimum agreement from the circuit operators is just as damming to the collective of the CVC agreements as is would be if one of the big entities walked.

It's all reminiscent of a Rube Goldberg machine with all the checks and balances barely in check and barely in balance. The model is unsustainable from a long term perspective and that's why it's in the pickle it's in today.

EDIT: I can't find a source at the moment but Wolf and Lauda have both stated in the past that they have one of the "special" deals with Bernie guaranteeing them mo' money should they win two consecutive championships. So that in one sentence illustrates what's wrong with the current process. Bernie the Kingmaker makes these types of shoot from the hip decisions to meet a present challenge without regards to any long lasting sustainability of it all. It's all reactionary with him and if he profits he's happy, there is no further long term vision than that. It's just not in the nature of your garden variety greedy octogenarian to think long term.

[bhall II]

Some of those "special" deals reflect the value a team brings to the sport. For instance, nearly a quarter of respondents to this year's AUTOSPORT, F1 Racing and Motorsport News global fan survey indicated they would stop watching F1 if Ferrari quit. Since viewership and attendance figures are two of the prime factors used when negotiating sponsorship/licensing fees, the loss of that many fans would have a significant impact on the sport's revenues from top to bottom, and everyone involved would feel the pinch.



That's not to say any particular deal is right or wrong, just that consideration needs to be given to the big picture.

[TAG]

No dispute there but it's all been built on a shaky foundation. A lot of us participated in those polls but I'd argue that the casual fan has a lot less vested interest and the results would differ if the poll respondent weren't the hard core fans that most likely did respond.

There's also no correlation to a team's premium payout to their performance which further illustrates the shoot from the hip negotiating that's I maintain has led us to this situation. The premium payout seems not only arbitrary but fixed with no erosion of premium based on what's actually being delivered. Ferrari finishing 4th last year and Red Bull finishing 4th this year yet both drawing a considerable sum just for showing up isn't something that should be seen as a value add by any business model that wants to seem viable.

The premium dollars used to pacify the squeaky wheel teams is the issue at hand, clearly Bernie has time and time again made it up as he's gone along and it's lead to an unsustainable long term model with FOM/CVC wanting to squeeze more and more water out of the rock. Why shouldn't Force India, Sauber, Lotus squeak as a collective? Like I said, they're in a can't lose situation because they've already lost.

EDIT: and BTW I do agree with the basic premise that it's the disparate FOM/CVC share of the income that's the issue but it's not what's been brought before the EU by Sauber and Force India, it will lead to a lot of dirty laundry being aired.

[AnthonyG]

Some of those "special" deals reflect the value a team brings to the sport. For instance, nearly a quarter of respondents to this year's AUTOSPORT, F1 Racing and Motorsport News global fan survey indicated they would stop watching F1 if Ferrari quit. Since viewership and attendance figures are two of the prime factors used when negotiating sponsorship/licensing fees, the loss of that many fans would have a significant impact on the sport's revenues from top to bottom, and everyone involved would feel the pinch.

http://i.imgur.com/FngPzxv.jpg

That's not to say any particular deal is right or wrong, just that consideration needs to be given to the big picture.

Rule #1 of market research: People say what they don't do and do what they don't say.

[bhall II]

There's also no correlation to a team's premium payout to their performance which further illustrates the shoot from the hip negotiating that's I maintain has led us to this situation. The premium payout seems not only arbitrary but fixed with no erosion of premium based on what's actually being delivered. Ferrari finishing 4th last year and Red Bull finishing 4th this year yet both drawing a considerable sum just for showing up isn't something that should be seen as a value add by any business model that wants to seem viable.

That's because the idea behind "premium" payouts isn't to reward performance, but to incentivize longevity. The results of the sporting competition are mostly irrelevant as far as FOM is concerned, because the only immutable obligation in FOM's contracts with broadcasters, promoters, and sponsors is the number of cars to be delivered to each race. If a team wins a Championship or two, it's that much more likely to stick around.

This is also why actual performance payments from "Column 1" and "Column 2" take two years to collect. The delay guards against "hit and run" strategies designed solely to capitalize on F1's standing as the most lucrative motorsport in the world - the tenth-place team in F1 collects significantly more than most other series' Champions.

Like its puppet master, the whole system is a bit archaic at this point. But, it's hard to argue against the transformative effect it's had on the sport. What was once an inconsistent and loosely organized collective of rivaling interests that most people could only read about in newspapers is now a reliable multi billion-dollar industry with an enormous media presence all over the world.

On a somewhat related note: I don't know how the --- I became this thread's de facto champion of the marginalized components of the status quo, but it's really weird, and it makes me feel kinda dirty.

[turbof1]

On a somewhat related note: I don't know how the --- I became this thread's de facto champion of the marginalized components of the status quo, but it's really weird, and it makes me feel kinda dirty.

Oh but we like it when you talk dirty .

[Phil]

That's because the idea behind "premium" payouts isn't to reward performance, but to incentivize longevity. The results of the sporting competition are mostly irrelevant as far as FOM is concerned, because the only immutable obligation in FOM's contracts with broadcasters, promoters, and sponsors is the number of cars to be delivered to each race. If a team wins a Championship or two, it's that much more likely to stick around.

And therein lies the rub if you ask me. The reward of "sticking around" should be solely on the basis of viewership, positive PR, TV time on the merit of competition. If a team is successful, it will show up, because the greatest PR you can get, is that on the basis of winning - not any premium payments. The premium payments are a nice bonus if you aren't competitive and the sport pays you to "stick around" regardless - but I think history will show you that the potential damage of bad PR by not being anywhere near competitive is greater than any premium payment the sport might throw at you.

I'd also argue that a team who fails to compete over multiple years, even if it is Ferrari, will seize to be of interest to the general F1 viewership. If McLaren continues to follow cars from the last 5 positions, if they do this long enough, people won't care. It's not as if McLaren, even thanks to the likes of Alonso or Button driving for them, create a lot of talk on these very forums. It's all about the front runners.

Teams should be measured on their momentary value, perhaps the value they've brought over the 5 years, but no one cares what was 10-20 years ago. Also, I'll say it again - but the sport will not survive if you only had 3-4 teams (the top teams) without the smaller teams to fill the grid - those smaller teams that right now receive peanuts. The big teams might be all big talk in willing to jump in to supply 3-4 cars to fill the grid, but as soon as it relegates the 2nd team down to 5th, they too will not be happy adding to the overal destruction of the sport.

[TAG]

Like its puppet master, the whole system is a bit archaic at this point. But, it's hard to argue against the transformative effect it's had on the sport. What was once an inconsistent and loosely organized collective of rivaling interests that most people could only read about in newspapers is now a reliable multi billion-dollar industry with an enormous media presence all over the world.

Cynical me got a good chuckle out of this, since about 80% of the posts and comments on the F1 interwebz seem to be about longing for the good ol' days of yesteryear; Sanity just can't get a break.

What I gather from our exchange is that we think it's clearly broken but we disagree on who to apportion the 60/40 blame of the problem.

[turbof1]

That's pretty clear for me: the one who did made the sport better. Yes, Bernie Ecclestone did turned the whole F1 into a commercial success. HOWEVER, success has made the commercial side very greedy. The commercial rights holder gets over a thirth of the revenue.

Rationaly speaking, and yes this is quite cold, Bernie's past actions should not hold any value. You simply can't reason like "he did such a good job all those years ago, he has earned the right to suck the sport dry."

Ethically speaking of course, outside the discussion of whether how this influences the Commission case.

[bhall II]

Cynical me got a good chuckle out of this, since about 80% of the posts and comments on the F1 interwebz seem to be about longing for the good ol' days of yesteryear; Sanity just can't get a break.

What I gather from our exchange is that we think it's clearly broken but we disagree on who to apportion the 60/40 blame of the problem.

I'd love to see a return of the spirit or vitality of the sport's "golden age," but that's about it.

And, yeah, I think it's very easy to see the problems inherent to the system. Discerning what they represent, on the other hand, is decidedly more complicated.

And therein lies the rub if you ask me...

You have to understand that the largesse of the sport's current licensing deals is predicated upon a guarantee that X number of cars will compete at every grand prix. Ecclestone made his fortune (and the sport's) by being the first person to make such a guarantee and deliver upon it every time. Prior to that, F1 had minimal bargaining power, because the makeup of the starting grid was erratic at best.

Another aspect to keep in mind is that those guarantees also give the teams more leverage in their dealings with FOM than would otherwise be the case without them. Everyone knows about FOM's contractual obligations, which makes what is effectively a bidding process for the teams' services more competitive, because it's understood that FOM would be in breach if fewer than X number of cars are available to compete.

The issue here with Force India and Sauber is that they don't seem to agree with the valuation of their services. While that's easily understandable, I think it's irrelevant. The simple fact of the matter is that those two teams can be replaced rather easily by a stop-gap solution of a few three-car teams followed by the debut of new entrants. It's simply the nature of the beast.

Usual disclaimer: it should not be assumed that I agree with something just because I've described it.

[TAG]

The simple fact of the matter is that those two teams can be replaced rather easily by a stop-gap solution of a few three-car teams followed by the debut of new entrants. It's simply the nature of the beast.

Yet 3 car teams from Ferrari and Mercedes would put even more power in the hands of the teams, like an MC Escher staircase... or a better analogy



Nature of the beast indeed; Bernie's time has passed.

[bhall II]

Honest question: at what budget point can it be said a team has a fair shake and is solely responsible for its results on-track? Based upon what I've seen, my view is that relatively little should ever be expected from the complainants in this case at any budget level.

Combined with a management team that doesn't exactly inspire confidence with its decsion-making, It seems years of being carried by a technical partnership with Ferrari and then works-level support from BMW have resulted in an atrophied ability for Sauber to independently design and develop competitive machinery. And like most of its owners endeavors, Force India has displayed an unflinching willingness to operate as a highly leveraged enterprise, which is the chief enemy of sustainability, regardless of income.

So, I guess the question is really this: what's the appropriate protocol for handling dead-end teams? Invest or divest?

[turbof1]

Given we barely have any new teams (Haas is the first in 6 years) and grid count is dangerously low, the responsible thing to do would be invest.

However, with limits and condition. We don't want more moral hazards around.